Vessel value and casualty trends & the impact of sleeping beauties Astrid Seltmann Analyst/Actuary @ The Nordic Association of Marine Insurers (Cefor)

Contents The Nordic Marine Insurance Statistics (NoMIS) 24.06.2018 Contents The Nordic Marine Insurance Statistics (NoMIS) Vessel values & Age Casualties – General trends Claims frequency Claims cost Cost driving factors Casualties – Special Lay-ups: how do they impact claims trends? Appendix (Definitions / disclaimer)

The NoMIS Fleet – No. of vessels with IMO-number 24.06.2018 NoMIS Nordic Marine Insurance Statistics The NoMIS Fleet – No. of vessels with IMO-number For statistical purposes reflect NoMIS vessel values and casualty costs always 100% of each vessel, independent of the insurers’ written share in the vessel. as of 31 December 2016

Nomis Fleet as % of world fleet vessels with IMO number 24.06.2018 Nomis Fleet as % of world fleet vessels with IMO number NoMIS Nordic Marine Insurance Statistics Cefor insured vessels as % of World Fleet: Vessels > 1,000 gross ton 1) 1) “Cefor share” calculated as the number of vessels partly or wholly covered by Cefor members in underwriting years 2015 & 2016, divided by the total number of ships with registered IMO-number in the world fleet. World fleet count as according to Lloyd’s List Intelligence “World Fleet Update” as of January 2017. as of 31 December 2016

Contents The Nordic Marine Insurance Statistics (NoMIS) 24.06.2018 Contents The Nordic Marine Insurance Statistics (NoMIS) Vessel values & Age Casualties – General trends Claims frequency Claims cost Cost driving factors Casualties – Special Lay-ups: how do they impact claims trends? Appendix (Definitions / disclaimer)

Average gross ton & vessel value NoMIS Nordic Marine Insurance Statistics Decrease in vessel values despite increase in vessel sizes as of 31 December 2016

NoMIS Nordic Marine Insurance Statistics Change in values on renewal comparing insured value of same vessels in two consecutive years Under stable market conditions, some value reduction normal due to the aging factor (<= 5%). as of 31 December 2016

Bulk, Supply/Offshore vessels: Strong drop in values NoMIS Nordic Marine Insurance Statistics as of 31 December 2016

Change in offshore vessel values & oil price NoMIS Nordic Marine Insurance Statistics as of 31 December 2016

Average VESSEL Age Recent increase – less newbuildings 24.06.2018 NoMIS Nordic Marine Insurance Statistics Average VESSEL Age Recent increase – less newbuildings as of 31 December 2016

Newbuildings world fleet Source: Lloyds List Intelligence, World Fleet Update as of 31 December 2016

Summary Fleet trends (Insured) Vessel values drop since 2009 but average vessel size continues to increase Largest drop in 2015/2016 for bulk and supply/offshore vessels World fleet gets older Less newbuildings entering the fleet => Implications on casualty trends? …and vessels get bigger from 2010 more newbuildings > 5,000 gross ton than less. => Increasing risk of more costly single loss events as of 31 December 2016

Contents The Nordic Marine Insurance Statistics (NoMIS) 24.06.2018 Contents The Nordic Marine Insurance Statistics (NoMIS) Vessel values & Age Casualties – General trends Claims frequency Claims cost Cost driving factors Casualties – Special Lay-ups: how do they impact claims trends? Appendix (Definitions / disclaimer)

Total number of claims: 24.06.2018 NoMIS Nordic Marine Insurance Statistics Number of Claims by type of casualty Total number of claims: 2011-2015: 16,854 2016: 3,053 as of 31 December 2016

Total cost of claims in USD million: 24.06.2018 NoMIS Nordic Marine Insurance Statistics Cost of Claims by type of casualty Total cost of claims in USD million: 2011-2015: 4,471.3 2016: 491.7 as of 31 December 2016

Claims Frequency*: Long-term positive trend 24.06.2018 Claims Frequency*: Long-term positive trend NoMIS Nordic Marine Insurance Statistics * = No. of claims divided by no. of insured vessels Pre-financial crisis peak Partial loss frequency Total loss frequency as of 31 December 2016

Claims frequency > certain levels: stable to positive trend NoMIS Nordic Marine Insurance Statistics as of 31 December 2016

Claim cost per vessel: Increasing volatility by major claims NoMIS Nordic Marine Insurance Statistics 2012/13/15: strong major claims impact 2004: first claim > USD 50 million 2014/16: little major claims impact Claim bands: as of 31 December 2016

claims Exceeding 10 USD million as % of total claim cost Strong volatility and impact on costs by major claims. as of 31 December 2016

claim cost per vessel – including/excluding total losses 2003-08: Strong increase in repair cost per vessel. Since 2009: repair cost stable; Volatility by major claims impact. Strong total loss impact as of 31 December 2016

Claims frequency – Alternative Facts (?)

Lloyds List INtelligence: Total losses as % of world fleet vessels > 500 GT Total losses: Long-term positive trend. Same perception as NoMIS stats. as of 31 December 2016

Lloyds List INtelligence: ‘Serious’ casualties as % of world fleet vessels > 500 GT LLI: Strong increase in ‘serious’ casualties in 2015 and 2016. NoMIS: Some impact by major claims in 2015, but very little in 2016. So what’s right? as of 31 December 2016

Answer: both!

Beware of the Terminology! ‘Serious’ casualty = serious related to the nature of the casualty (Lloyds List Intelligence, or IHS, Clarkson Research) ‘Major’ claim = extraordinary costly casualty, e.g. > 5 USD million (Insurer terminology) Major claims are usually the result of serious events, but serious casualties are not necessarily costly. ‘Total loss’ = vessel is lost or damaged beyond repair. The perception of a ‘total loss’ is near equal by all parties. For insurers, a total loss means being liable to pay the insured value of the vessel (or even more, including salvage costs and 3rd party liability). A ‘constructive total loss’ occurs when the assumed repair costs exceed e.g. 80% of the insured vessel value. as of 31 December 2016

NoMIS claims with match in LLI Casualties: split by ‘serious’/’non-serious’ (LLI) & 5 USD million cost (NoMIS)

Cost Driving factors NoMIS Nordic Marine 24.06.2018 Insurance Statistics Cost Driving factors Sources: Claim indices: Cefor NoMIS data as of 31.12.2016; Exchange rates: Norges Bank, Ship operation costs: Moore Stephen’s, Steel: CRU Steel Price Index as of 31 December 2016

Summary Casualty trends Total loss frequency Long-term positive trend continues in 2016 after small increase in 2015. Overall claims frequency Long-term stable to downwards trend Repair cost Increase before financial crisis, since 2009 relative stable at pre-crisis level. Correlation with certain parameters (e.g. steel price, USD exchange rate, labour cost). Major (=costly) claims More expensive single claims. (increasing vessel sizes, more complex objects) Increasing Volatility Strong impact in some years (2012, 2013, 2014), little in other years (2014, 2016). Due to random occurrence, difficult to estimate major claims impact for a specific year. ‘Serious’ casualties Strong increase in 2015 and 2016. Majority of ‘serious’ casualties no ‘major’ claims in terms of cost. A high share of ‘serious’ casualties should nevertheless give rise to concern and be further investigated. Lay-ups: Does a higher share of inactive vessels keep the claims frequency/cost at bay? as of 31 December 2016

Lay-up effect – Example: Container vessels laid up in 2009

Claims frequency of container v Claims frequency of container v. in lay-up in 2009 versus active vessels NoMIS Nordic Marine Insurance Statistics

24.06.2018 NoMIS Nordic Marine Insurance Statistics Claim cost per vessel of Container v. in lay-up in 2009 versus active vessels Sources: Claim indices: Cefor NoMIS data as of 31.12.2016; Exchange rates: Norges Bank, Ship operation costs: Moore Stephen’s, Steel: CRU Steel Price Index as of 31 December 2016

Summary Lay-up effect on Claims trends Container vessels in lay-up in 2009: Claims frequency was reduced by half during the period of inactivity. Claims frequency & cost were above average both before and after lay-up period! Why also before lay-up? Substandard container vessels first put into lay-up? Supply/Offshore vessels in lay-up in 2016: Claims frequency equally reduced during period of inactivity in 2016 …but claims frequency before lay-up period was normal! How claims frequency develops after lay-up period remains to be seen! May be challenging to reactivate complex objects. as of 31 December 2016

NoMIS Reports 2016 NoMIS Nordic Marine 24.06.2018 NoMIS Nordic Marine Insurance Statistics NoMIS Reports 2016 Cefor marine insurance statistics publications at www.cefor.no/statistics : (check the ‘NoMIS’ section) Cefor Annual Report 2016 The 2016 Cefor NoMIS OCEAN Hull Report The 2016 Cefor NoMIS COASTAL Hull Report Half-yearly Claims Update Fact Sheet Comparing claims trends for ships built in Asian countries (Cefor Annual Report 2015) Fires on Car/RoRo/Passenger vessels (Cefor Annual Report 2014) Other marine insurance statistics: IUMI (International Union of Marine Insurance) – Statistics issued by IUMI’s Facts & Figures Committee: https://iumi.com/statistics as of 31 December 2016

Thank you. astrid.seltmann@cefor.no

The Nordic Marine Insurance Database 24.06.2018 The Nordic Marine Insurance Database The Nordic Marine Insurance Statistics (NoMIS) is a joint database project of Cefor members active in the Hull & Machinery market to compile insurance data and vessel characteristics for statistical purposes, administered by Cefor. From its foundation in 1985 until 1997, the data was compiled by appointing Cefor a facultative reinsurer to which members of the Norwegian Hull Agreement ceded 0.1% of their H&M insurance. Premium and claims information was exchanged via Borderaux, the lead insurer providing details of each claim. In 1996, the hull agreement was discontinued, but the statistics cooperation continued. In 1998, steps were taken to update the NoMIS’ database electronically instead of manually. From December 1999, Cefor could produce up-to-date hull figures on regular basis. The scope of reporting was extended substantially by including non-lead business. From 2000, also business back to underwriting year 1995 was updated electronically. In the following years, several new major Cefor members joined the NoMIS cooperation, reporting retrospective data from 1995 underwriting year. In 2009, data from Gjensidige and Tryg was integrated, dating back to underwriting years 2000 and 2003 respectively. In 2012, data from Alandia was added, starting with underwriting year 2005. Further, If extended their scope of reporting to include all Nordic business. In 2015, the reporting format was modernized and the database migrated to a new technical platform. In 2016, data from Skuld was added, dating back to underwriting year 2011. From 2016, all member report according to the modernized reporting format. By 31st December 2016, in all 246,232 vessel-years and 71,311 claims were registered on underwriting years 1985 through 2016 for the ‘ocean’ hull portfolio (vessels with IMO number). The NoMIS statistics in this report comprise data from the following marine insurers: Alandia, Bluewater (until 2008), Codan, Gjensidige, If, Gard, NEMI (until 2009), Norwegian Hull Club, Skuld, The Swedish Club, Tryg (until 2009), Zurich (until 2002). as of 31 December 2016

ocean huLL Report – Definitions 24.06.2018 NoMIS Nordic Marine Insurance Statistics ocean huLL Report – Definitions All amounts are presented in USD. Rate of exchange applicable to convert the figures from the original currencies into USD: Insured values: av. rate of exchange of the month the insurance coverage gets into force Paid claims: av. rate of exchange of the month of the payment transaction Outstanding claims: av. rate of exchange of December 2016 Underwriting year = year in which the insurance policy attaches All claims are net of any applicable deductibles. Total Claims = Paid claims + Outstanding claims TLO (total losses) = claims in excess of 75% of the Sum Insured1 Partial Losses = all claims <= 75% of the Sum Insured IBNR (”Incurred but not reported”) = reserve for claims adjustments and registration backlog 1 According to Clause 11-3 of the Nordic Marine Insurance Plan, a constructive total loss (CTL) is defined as a claim exceeding 80% of the sum insured (www.nordicplan.org). To cater for currency conversion issues, the Cefor Statistics Forum includes in its total loss statistics all claims exceeding 75% of the sum insured. as of 31 December 2016

24.06.2018 Legal disclaimer Legal disclaimer Cefor provides the statistics material in this presentation for general information purposes only. All key figures are derived from the Cefor portfolio, which reflects a minor part of the world fleet, the selection of ships being biased by Nordic underwriting preferences. Therefore Cefor can accept no responsibility and shall not be liable for any loss which may arise from reliance upon the information provided. With reference to Commission Regulation (EU) No 267/2010 of 24 March 2010 (EU Block Exemption), it is further stressed that the statistical data presented in this publication is non-binding in its character. as of 31 December 2016